Legal Question in Wills and Trusts in California

You are mixing apples and oranges. There is not a sale in the sense of a financial transaction, so there are no issues of capital gain etc.. All trusts that I prepare include very specific provisions regarding the continued existence of an assets characterization, namely, if it was community or separate property at the time of transfer to the trust. Your questions are probably answered in the body of the trust itself, and without seeing it I cannot give you any more advice. Even if there was no language like what I use, I would make the argument that the trust is simply an estate planning device and in the event of a divorce does not effect a transmutation of separate into community property or vice versa.

The transfer to the trust is not a sale, but it is a transfer of ownership just LIKE a sale, or a gift for that matter, for purposes of severing the Joint Tenanacy. The terms of the trust instrument replace the law of joint tenancy as to all the rights in the property, such as possession, occupancy and succession on death. In California property can be owned as a person's sole and separate property, as tenants in common, as joint tenants, as express community property (rarely used), or in trust. It has to be one, and only one, of those (although as discussed below there can be community property RIGHTS in property held any of those ways). It cannot be simultaneously in trust and as joint tenants. So the transfer to the trust severs the joint tenanacy and the property is now owned in trust.

Mr. Seidler is partially correct on the tax issue. Not all transfers of title carry tax consequences. That does not mean they are not transfers of title. If the transfer is to an irrevocable trust, however, it is often a taxable event. You would need to consult with an attorney about your specific situation and planning to figure out if that was the case or not for your situation. If it is to a revocable trust, it is not a taxable event.

As for community property, again, not all transfers of title automatically alter the community property rights. I can take $100,000 out of a securities account that is held in joint tenancy, and deposit it in a bank account in my name, but it will still be community property for divorce purposes even if title is not held that way. Community property is both a way of holding title and a bundle of rights. In the event of divorce, the rights will trump title. In the case of transferring into a trust, the community property rights in the property put in the trust continues even though title is changed, unless the trust documentation contains an express transmutation. Using your corporation example, if the trust is like a corporation then you can think of it as the joint tenants have converted ownership of the property to ownership of the corporation that owns the property. The trustors, likewise, have converted their community property rights in joint tenancy property into community property rights in the trust.